Vehicle merchants jittery over tax revision

By Sunday Observer News Desk

Importers of second hand vehicles are daggers drawn over the latest tax reforms imposed by the government, triggering tax and duty components on high-demand vehicle categories to shoot up by staggering amounts.

The notice giving effect to the Treasury's 2015 tax reforms, calling for the minimum tax unit on most vehicle imports including three-wheelers, to increase by several fold was issued by Finance Minister Ravi Karunanayake on Friday .

Importers of used vehicles at a hurriedly held media briefing on Friday condemned the move which could lead to the collapse of the entire sector.

Vehicle Importers Association of Sri Lanka (VIASL) Indika Sampath Merenchige said the Association predicts a 85 percent drop in the import of vehicles with the cylinder capacity between 1000cc to 1500cc after the outrageous tax reforms.

The notice issued by the finance minister on Friday stated the new taxes will come into effect from May 12.

A senior Government Minister declining to comment on the controversial tax reforms on vehicle imports said such action by the Finance Ministry could put the government in a difficult situation.

Vehicles importers lamented that this was the highest duty increase on vehicles in the recent past.

Early this month, the importers lamented over the global currency fluctuations saying that they will be forced to suspend the vehicle imports for three to six months unless the buyers agree to meet up the additional costs attributed to such fluctuations. They said the depreciation of the rupee against the dollar and appreciation of the Yen against the dollar have made them to incur huge losses.

This is the second blow the sector had to face within a month. According to VIASL Sri Lanka is among the biggest importers of Japanese vehicles in the region.

However, the prices of some of the smaller vehicles with an engine capacity of less than 1500 CC such as Toyota Vitz, Passo, Honda CRX 2door (Hybrid), Honda Insight (Hybrid), Honda Shuttle (Hybrid), Suzuki Wagon R(Hybrid), Suzuki Hustler (hybrid), Honda Freed (hybrid), Honda Vezel (Hybrid) and Nissan Leaf (Electric) have been reduced.

The highest price reduction of Rs.1 million is effected on Nissan Leaf Electric 80KW while the tax of Nissan Leaf Electric 70KW has also been reduced by Rs.945,000.

As such the Customs Duty of Rs.2.9 million on a Nissan Leaf electric vehicle would be reduced to Rs.1.7 million.

According to VIASL, due to the increase in Unit Rate Tax from Rs.2.6 million to Rs.3 million, the price of a Toyota Prius has increased from Rs.3.3 million to Rs.7.7 million.

As a result of the tax reforms, the excise duty which was maintained at a lower level during the past three weeks has also been increased. However, tax on buses, vans and lorries have not been increased.

The VIASL warned if this trend continues, only vehicles below 1000cc engine capacity will have to be imported in the future.

Lanka Vehicle Importers' Association (LVIA) said the prices of vehicles with cylinder capacity exceeding 1599cc (1600cc) would be increased because of the newly introduced Transected Value or Unit Rate Tax.

As a result the tax on a Nissan X-trail which is currently taxed at Rs.4 million would increase to Rs. 8 million.

The price of a Mazda Axela has been increased by Rs.4.2 million, Toyota Land Cruiser Rs.3.4 million, Toyota Prius (2016) Rs.3.6 million, Nissan X-trail Rs.3.6 million, Toyota Camry Hybrid Rs.4.8 million, Mercedez Benz C Class Rs.3.2 million, Mitsubishi Outlander Rs.2.5 million, Subaru Axela Rs.4.1 million, Honda CRV Rs.4 million, Mazda CX5 Rs.4.8 million, Harrier Hybrid Rs.2.3 million and Honda Accord Rs.2.6 million.

Meanwhile reconditioned vehicle importers have also said they have no option but to close down their business depriving employment to around one million people unless the government reconsiders its move.

Their main grievance is not the increase of taxes on vehicles but the reduction of the life span of a motor car permitted to import from two to one year and vans from five to three and half years.

The revised duty will be applicable not only to motor vehicles, but also to a range of other goods, services and businesses.

The full list can be accessed at,

http://www.treasury.gov.lk/documents/10181/33947/Tax+Reforms-2015.pdf/77dc866e-112c-47b8-9f5d-9244dabffa92